Does Trade Make People Better Off?

Often times when talking about free trade, protectionists argue that trade does not necessarily make people better off. They often point to those who lose their jobs to more efficient and less costly foreigners as a detrimental result of free trade. However, this view misunderstands what economists mean by “gains from trade.”

Suppose I am in the market for a new laptop computer. If I am permitted to trade freely with anyone in the world, I will choose the computer that best fits my preferences. Now suppose that I have narrowed my selection to either an HP or a Sony. Absent trade restrictions, I decide to purchase the Sony because I can get the same quality computer for a lower price. Thus I am better off and so is Sony. However, if someone at HP lost their job as a result of this purchase, protectionists would claim that society is not better off.

Now consider the alternative. Suppose that the government has prior knowledge of my intentions of purchasing the Sony laptop. Protectionists in the walls of Congress decide that they need to save the jobs of those working at HP and imposes a trade restriction on Japanese made computers. Since I still need a computer, I may purchase my second choice, the HP, or withhold my purchase until a later date. The man at HP who kept his job is better off. Unfortunately, neither I nor Sony can be considered better off.

All too often protectionists attempt to view trade with what can best be described as a social utility function. Equally important to their analysis is the fact that workers are given much more weight than consumers, which results in favoring higher prices and possibly lower efficiency. Unfortunately for protectionists, we cannot aggregate the preferences of society (see Arrow’s Impossibility Theorem).

When we discuss trade, we must only be concerned with those involved in the transaction. Thus, although it is a favorite phrase used by protectionists, there are no “winners” or “losers” involved in freely traded commodities because one will not trade with others if it will make him worse off (the “loser”). Therefore, if trade takes place it must be true that each participant is better off. We can make no such generalization about society, nor should we.

This argument is by no means an argument against buying domestic goods. It is perfectly acceptable for individuals to purchase goods within their own country or community if that increases their own utility. However, it is not acceptable for those same individuals to impose their preferences on others.

7 responses to “Does Trade Make People Better Off?

  1. Dude…you’re getting a Dell!

    Sorry, just had to say it, but I love my new Dells.

  2. Peter Garang Deng

    For those who say trade does not makes people better off. Yes you are right when you are not in business it can be very hard to understand that trade make everyone better off. Believe or not trade makes people better. For example, a farmer will not accept to trade with rancher if he know very well that he or she is going to get loss instead of gain. There is also gain in trade in both side.

  3. hi! actually im not getting wht u exactly want to tell sorry but this is my opionion.

  4. according to me trade can make everyone better off.if there would be no trade then we cannot enjoy all the things that we are enjoying everyday like morning coffee of Brazil,a news programme that had taken place at Florida.so,we are interdependent on every one and every countries of the world

  5. Marvin L. Zinn

    I see, corporations can make profits by selling things cheaper, and they do that for customers who want it that way, but to do this they have to pay and benefit their employees less. Or a foreign country can make it ever cheaper when their employees are slaves and have no safe conditions.

    I gladly pay more for a family operation and/or a company I know who treats their employees better!

  6. you have not clear idea i think why trade can make everyone better off

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